Hyperinflation: 2011, 2012 or …?

Discussion in 'Economy' started by hvactec, Oct 23, 2011.

  1. hvactec
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    hvactec VIP Member

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    10/22/2011

    Is hyperinflation coming? If so, when will it start and how bad will it be?

    In the United States, the Federal Reserve has been “printing” a lot of dollars. This would normally lead to inflation, but that hasn’t happened just yet. There are a number of reasons why we’re not seeing inflation, and these same reasons could also contribute to a future hyperinflation. It could start by the end of 2011, sometime in 2012, later or maybe never.

    A lot of entities are holding dollars as a perceived safe asset. This includes individuals, foreign governments and companies. Today’s Wall Street Journal talks about Americans paying off debt and avoiding any more borrowing. Foreign governments are reportedly building up huge reserves of US cash and equivalents. See The Economist on China’s foreign reserves for an example.

    In politics we also hear references to US companies holding lots of money overseas, keeping the money there to avoid taxes if and when they bring the money home. There is a push to reduce taxes on such money if repatriated, with the claim that the flood of money would increase tax revenue and create jobs. See a recent Washington Post article for that.

    There is a nightmare scenario. When people anticipate rapid inflation, they spend cash quickly to acquire things before the money loses value. This spending increases demand and that increases prices, accelerating inflation in a vicious cycle – Hyperinflation.

    Governments face pressure to increase salaries and prices paid for other goods and services and they print money to do so. The printing of more money further accelerates the inflation.

    We might be headed there. With people, companies and governments holding piles of cash, the situation is ripe if something kick-starts it. Proposals to reduce taxes for companies to bring their money home are an example of a potential spark. It doesn’t have to be a policy decision – it could just happen, like lightning in a dry forest.

    Once a spark ignites the fire, more and more of those holding cash will start spending it, whether on durable or consumer goods, or on assets like real estate or stocks.

    From an investment perspective, there are two challenges. First, is it possible to time when hyperinflation might begin. I don’t think it’s possible to do so.

    Second, if we do see hyperinflation coming, are there safe places to put your money? Again this is a tough one. Many of my friends are fond of gold. But that goes against the investing maxim – Buy low, sell high. Gold is very expensive right now.

    Real estate seems a good potential investment because it appears low right now, but that’s where timing comes in. With so many potential foreclosures on the horizon, real estate values could drop much further in the next few years.

    It’s far from clear that hyperinflation is coming. Japan has been through much of what we’re going through and has had deflation seem to be a bigger problem – the opposite of inflation. See The Economist on deflation in Japan.

    read more Hyperinflation: 2011, 2012 or …? « NY: Stop Wasting Money
     
  2. Middleoftheroad
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    Middleoftheroad Active Member

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    Hyperinflation isn't coming, the total of all the money that the fed has been printing doesn't even make up for the money that people and businesses haven't been borrowing. Further, even the debt the government has been adding, doesn't even make up for the private debt that has been shedding since this recession began. Further when the government spends or prints money that money is immediately injected into the economy, inflation would happen at the same time.
    People talk about the 600B dollars the fed printed, but seriously, your talking about an economy that has 74T in assets, the money the fed printed should account for roughly 7% inflation, I think last year it was just over 6% so there is only a 1% inflation lag.
    And furthermore, to answer your question, if there really was hyperinflation, real estate would be a fine place to invest your money. It might experience a momentary lag before the prices started climbing, but rent would climb with inflation, and soon buying a house would be cheaper then paying rent, at which time the housing prices would also soar.
     
  3. expat_panama
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    expat_panama Silver Member

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    Actually, the latest number on assets is really $73T so you're close enough here, but those inflation numbers don't make any sense at all.
     
  4. Flopper
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    Flopper Gold Member

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    Inflation in 1920 peaked at 23%. The next period of really high was the early early 70's. Inflation peaked at about 12% in 1974 then fell sharply. It rose in the late 70's and peaked at about 15% in 1980 then fell off. Since then inflation has been relatively low.

    Periods of hyperinflation typically last only two or three years such as in Germany in 20's. In only a few countries such as Brazil has hyperinflation lasted more than 10 years. Trying to protect yourself from hyperinflation is like trying protect yourself from the next recession. You have be able to predict when , how much, and how long. IMHO, unless you have a crystal ball, it's best to keep your assets well diversified in both hard and soft assets classes. However, if your crystal ball is really working for you, then hard assets like gold and collectibles do well during periods of hyperinflation.
     

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